The BOJ's minutes for the October meeting contain little surprise. While policymakers voted unanimously to keep the policy rate unchanged at 0.1% and leave the target for the monetary base expansion at an annual pace of 60-70 trillion yen, 3 of the 9 board members were opposed to the central bank's baseline medium-term growth and inflation outlook that upside and downside risks are balanced. In general, members were expecting Japan's economic growth to accelerate in the second half of fiscal year. Yet, they cautioned that the growth rate would slow substantially in fiscal year 2014.
On inflation, the members affirmed that the economy is on track to the 2% inflation target at a moderate pace. As stated in the minutes, 'the growth rate for fiscal 2014 would slow substantially compared with the previous fiscal year, as there would be a decline in demand from the front-loaded increase in demand prior to the consumption tax hike, mainly in the first half.
Nevertheless, the growth in exports was likely to accelerate, and business fixed investment would likely continue to increase firmly”. Moreover, the BOJ acknowledged that 'exports continued to generally pick up. Real exports had turned upward in the January-March quarter of 2013 on a quarter-on-quarter basis for the first time in three quarters and had grown at an accelerated rate in the April-June quarter…They then declined only marginally in the July-September quarter.
Public investment continued to increase in a situation where effects of the government's economic measures, including emergency economic measures, had come to fully take hold”. The central bank projected that Japan's economy would grow +2.7% in fiscal 2013, down from +2.8% projected in July. Growth would ease to +1.5% in fiscal 2014, compared with July's projection of +1.3%. The GDP outlook for fiscal 2015 stayed unchanged +1.5%.
Note that Sato and Kiuchi remained uncomfortable with the remarks that the CPI is 'likely to reach around 2% – the price stability target – toward the latter half of the projection period”. Sato proposed changing the current expression to 'Japan's economy is judged as likely to head toward achieving around 2% inflation”.
He also proposed changing the current expression that risks 'can be assessed as being largely balanced' to that they 'are somewhat tilted to the downside'. Kiuchi proposed changing the current expression that inflation expectations 'are likely to continue on a rising trend under quantitative and qualitative monetary easing, partly supported by a rise in the observed inflation rate, gradually converging to around 2% - the price stability target' to that they 'are likely to continue on a moderate rising trend, partly supported by a rise in the observed inflation rate. Also, he proposed to change the current expression that the year-on-year rate of change in the CPI 'is likely to reach around 2% - the price stability target' to that 'the rate of increase in the CPI is expected to rise moderately'. Shirai proposed to revise the language for clarity and stronger recognition of downside risks.
On monetary policy, 'most members' agreed to keep the accommodative policy so as to achieve its 2% inflation target. However, one member was concerned that 'in a situation where it seemed difficult to achieve the price stability target in about two years, if a rise were to occur in markets' anticipation that quantitative and qualitative monetary easing would continue for a protracted period or extreme additional measures would be implemented, this could lead to economic instability in the medium to long term, such as through a buildup of financial imbalances”. Another member noted that 'the price stability target was meant to be a flexible framework, and the BOJ should avoid giving rise to a possible misunderstanding that its ultimate goal was to achieve the specific inflation rate of 2%”
On inflation, the members affirmed that the economy is on track to the 2% inflation target at a moderate pace. As stated in the minutes, 'the growth rate for fiscal 2014 would slow substantially compared with the previous fiscal year, as there would be a decline in demand from the front-loaded increase in demand prior to the consumption tax hike, mainly in the first half.
Nevertheless, the growth in exports was likely to accelerate, and business fixed investment would likely continue to increase firmly”. Moreover, the BOJ acknowledged that 'exports continued to generally pick up. Real exports had turned upward in the January-March quarter of 2013 on a quarter-on-quarter basis for the first time in three quarters and had grown at an accelerated rate in the April-June quarter…They then declined only marginally in the July-September quarter.
Public investment continued to increase in a situation where effects of the government's economic measures, including emergency economic measures, had come to fully take hold”. The central bank projected that Japan's economy would grow +2.7% in fiscal 2013, down from +2.8% projected in July. Growth would ease to +1.5% in fiscal 2014, compared with July's projection of +1.3%. The GDP outlook for fiscal 2015 stayed unchanged +1.5%.
Note that Sato and Kiuchi remained uncomfortable with the remarks that the CPI is 'likely to reach around 2% – the price stability target – toward the latter half of the projection period”. Sato proposed changing the current expression to 'Japan's economy is judged as likely to head toward achieving around 2% inflation”.He also proposed changing the current expression that risks 'can be assessed as being largely balanced' to that they 'are somewhat tilted to the downside'. Kiuchi proposed changing the current expression that inflation expectations 'are likely to continue on a rising trend under quantitative and qualitative monetary easing, partly supported by a rise in the observed inflation rate, gradually converging to around 2% - the price stability target' to that they 'are likely to continue on a moderate rising trend, partly supported by a rise in the observed inflation rate. Also, he proposed to change the current expression that the year-on-year rate of change in the CPI 'is likely to reach around 2% - the price stability target' to that 'the rate of increase in the CPI is expected to rise moderately'. Shirai proposed to revise the language for clarity and stronger recognition of downside risks.
On monetary policy, 'most members' agreed to keep the accommodative policy so as to achieve its 2% inflation target. However, one member was concerned that 'in a situation where it seemed difficult to achieve the price stability target in about two years, if a rise were to occur in markets' anticipation that quantitative and qualitative monetary easing would continue for a protracted period or extreme additional measures would be implemented, this could lead to economic instability in the medium to long term, such as through a buildup of financial imbalances”. Another member noted that 'the price stability target was meant to be a flexible framework, and the BOJ should avoid giving rise to a possible misunderstanding that its ultimate goal was to achieve the specific inflation rate of 2%”
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